Six Smart Steps for Scottish Business Owners Facing Financial Trouble

The past few years have been tough for many Scottish businesses, particularly owner-managed and family-run firms. Rising costs, leftover COVID-era debts, and restricted access to finance mean that even well-run businesses can face severe cash flow problems.

If you’re a business owner dealing with financial concerns, it’s important to know you’re not alone – and that there are practical steps you can take to protect your business and your personal position.

Here are six essential actions to take if your business is struggling financially:

1. Understand Your Financial Position

When cash flow is under pressure, it can be tempting to avoid the issue – but facing the problem head-on is crucial. Start by building a clear, up-to-date picture of your finances. Prepare a current cash flow forecast, list all debts and their repayment schedules, and identify what’s due soon, such as VAT or PAYE, versus what you can realistically afford to pay. This clarity not only helps with decision-making but also puts you in a stronger position if you need to speak to advisers or lenders.

2. Speak to Your Lenders Early

Many business owners delay contacting their bank or funders until repayments have been missed, which limits their options. If you think you may have trouble meeting loan repayments, including Bounce Back Loans or CBILS, get in touch with your lender as early as possible. Lenders are often open to revised payment plans or temporary forbearance if you’re proactive and transparent.

3. Engage With HMRC

Falling behind on tax payments is a common challenge for small and medium-sized businesses but ignoring the problem won’t make it go away. If you’re behind on PAYE, VAT or corporation tax, contact HMRC promptly. They may be open to a Time to Pay arrangement, allowing you to spread repayments over a manageable period. However, if you wait too long, HMRC may begin enforcement action, which can include issuing a winding-up petition.

4. Seek Professional Advice Early

There’s a common misconception that speaking to an insolvency or restructuring adviser means you’re giving up – but, in reality, early advice often opens more options. A qualified adviser can help you understand your responsibilities as a director, whether your business can be restructured or whether formal insolvency processes might be necessary. Early advice also helps protect you personally, as directors can face personal liability if they continue trading while insolvent and fail to act appropriately.

5. Protect Your Personal Position

Many business owners have given personal guarantees to banks, landlords or suppliers without fully understanding the risks. If your business fails, these creditors could pursue you personally. Take the time to review any personal guarantees and understand what security lenders may hold. If in doubt, get legal advice. You may have options to renegotiate or limit your exposure, especially if you act early. Be cautious about injecting personal funds into the business unless you fully understand the consequences.

6. Create a Realistic Plan and Stick to It

Once you have a clear view of your financial situation, have spoken to key creditors, and taken advice, it’s time to build a short-term plan for the next three to six months. Focus on preserving cash. Consider what costs you can cut, renegotiate or temporarily pause. Be honest with suppliers and creditors about what you can pay and when. Keep your plan under regular review, as things may not go exactly as expected when cash flow is tight.

Final Thoughts

Financial distress is never easy, but ignoring it only makes the situation worse. Acting early, getting expert advice and staying grounded in reality can be the difference between saving your business and losing it.

If you’re worried about your business’s finances, don’t wait until it’s too late. Our experienced Scottish restructuring and insolvency team is here to help you protect what you’ve worked hard to build.

To discuss any of the points raised further, please contact a member of our Corporate law team here.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.